All good equity investments can make their owners money by appreciating in value over time, but in order to enjoy the profits, you have to sell off some of your position. That’s not the case with dividend stocks, which make regular payments to their shareholders that they can use as income or reinvest right back into their portfolios without selling a single share.
The companies that issue dividends tend to be large, stable and well established. Typically, they’re able to issue dividends because they’re so secure and well-heeled that they can fund their operations, growth and expansion and still have money left over to return to their shareholders.
Another good thing about this investment class is that the adage of getting what you pay for doesn’t always apply — many of the best dividend stocks also happen to be cheap dividend stocks.
Keep reading to learn about some of the most affordable income-generating equity investments — aka cheap dividend stocks — that you can find on the market today.
What Are the Best Dividend Stocks To Buy Right Now?
As you’re about to learn, the best dividend stocks are not always the ones that pay the highest dividends. The best dividend stocks are the ones issued by companies that are stable, well-managed and operating healthy balance sheets.
In that respect, dividend investing is no different than any other kind of equity investing. The goal is to target companies that are in good shape, that provide value-adding products or services and that are run with long-term growth and stability in mind.
What are the Cheapest Stocks That Pay Dividends?
The following is a look at 10 stocks that deliver outsized payments to their shareholders despite their low prices.
Even the most expensive stock on the list currently trades at less than $36 per share, but most are priced in the single digits. The lowest dividend yield is 2.62% — still much better than the S&P 500 average of 1.69% — but most are much higher, with three reaching into the double-digits.
1. Annaly Capital Management Inc. (NLY)
- Stock price: $6.45
- Dividend yield: 13.64%
Annaly Capital Management operates through several investment groups to finance and invest in both residential and commercial projects. It also invests in agency mortgage-backed securities.
2. UWM Holdings Corp. (UWMC)
- Stock price: $3.62
- Dividend yield: 11.05%
United Wholesale Mortgage has been the biggest wholesale mortgage lender in America by origination for seven consecutive years.
3. Hanesbrands (HBI)
- Stock price: $8.71
- Dividend yield: 6.89%
One of the most familiar consumer goods companies in the world, Hanesbrands operates through three segments: innerwear, activewear and international.
4. Prospect Capital Corp. (PSEC)
- Stock price: $7.48
- Dividend yield: 9.63%
Business development company Prospect Capital Corp. invests in Canadian and American middle-market companies, mostly in the fields of media, health care, food, financial services, business services, energy, industrials and manufacturing.
5. Enterprise Products Partners (EPD)
- Stock price: $26.32
- Dividend yield: 7.22%
Enterprise Products Partners is a holding company that deals in the trade and production of natural gas and petrochemicals.
6. Chimera Investment Corp. (CIM)
- Stock price: $8.50
- Dividend yield: 15.53%
A real estate investment trust, Chimera invests in mortgage assets both directly and through a network of subsidiaries. Its portfolio includes residential and commercial mortgage loans, mortgage-backed securities and other real estate assets.
7. Equitrans Midstream Corp. (ETRN)
- Stock price: $9.27
- Dividend yield: 6.47%
One of the largest natural gas gathering companies in America, Equitrans Midstream Corp has a major presence in the Appalachian Basin. Its three primary segments are gathering, transmission and water.
8. Yamana Gold Inc. (AUY)
- Stock price: $4.41
- Dividend yield: 2.72%
9. Walgreens Boots Alliance Inc. (WBA)
- Stock price: $35.06
- Dividend yield: 5.48%
Founded in 1901, Walgreens Boots Alliance operates health, beauty and pharmacy retail chains around the world. In the U.S., its drug stores operate under the names Walgreens and Duane Reade.
10. AT&T (T)
- Stock price: $17.54
- Dividend yield: 6.33%
Telecom, media and tech giant AT&T operates through four segments: Communications, WarnerMedia, Latin America and Xandr.
Can You Get Rich Off Dividends?
You’re more likely to get rich by investing in growth stocks, which have the potential for rapid and dramatic appreciation, than by pursuing the highest dividends possible.
Big tech companies, for example, typically don’t pay dividends because they reinvest all available cash back into the company to grow as fast as they can. When successful, the result is rapid stock appreciation that makes shareholders wealthy along the way.
Dividend investors, on the other hand, are typically after steady, predictable income over time.
Although it seems counterintuitive, the stock with the highest dividend is not always the best dividend stock. When a dividend yield is artificially high, it could indicate that the company is desperate to lure investors because it is in financial distress or some other kind of trouble.
Even the most prominent companies might struggle to pay supersized dividend payments over time, which is why it’s essential to examine metrics like free cash flow and the historical dividend payout ratio of any dividend stock you’re considering.
Low-quality, high-yield stocks are often the modern equivalent of fool’s gold.
How Can I Get $5,000 a Month in Dividends?
In order to earn $5,000 per month in dividends, you’d have to earn a 10% monthly dividend on $50,000 worth of shares, a 1% dividend on $500,000, a 0.1% dividend on $5 million, etc. — but there’s more to it than that.
Most companies pay dividends on a quarterly basis, not a monthly basis.
According to PocketSense, you can nail down a company’s monthly dividend payment by dividing the quarterly dividend payment — the dollar amount, not the yield percentage — by three. For example, if a company pays a quarterly dividend of $0.30 per share, the monthly dividend is $0.10 per share. From there, just multiply your way up to $5,000.
In this case, you would need 50,000 shares to earn $5,000 per month in dividends on a stock that pays $0.30 per share, per quarter.
You Should Know
If you see a great dividend stock that you like, but you have to save up until you can afford a share that’s out of your price range, it might be time to give your current brokerage firm a second look.
Many of the top brokerage firms — like Charles Schwab, Fidelity and M1 Finance — offer free investment accounts that let their customers participate in partial-share investing. Also called fractional-share investing, the setup lets you invest in any stock you like with whatever amount of money you have.
Not only do you not have to wait until you save enough to buy a whole share, but partial-share investing gives you the opportunity to diversify your holdings by purchasing a small piece of many stocks, irrespective of their share price.
For example, if you have $100 to invest, you can split it up into $10 investments spread out across 10 different stocks — or $5 investments in 20 stocks or any other ratio you like — even if each stock costs hundreds of dollars per share.
You’ve just learned about some of the most affordable dividend stocks, but partial-share investing makes every stock an affordable stock.
Information is accurate as of Aug. 31, 2022, and subject to change.
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